Trades unions in 19 countries say their union-nominated trustees in pension schemes managing over $20 trillion in assets will push for tax risks to be prioritised in the hiring of asset managers and in their subsequent investment reports in a potentially major development in fund management transparency on investee company tax exposure.
Responsible Investor reported last week that major asset owners and fund managers had featured in a huge cache of leaked tax documents focused on Luxembourg’s complex, low-tax regulatory regime published on-line in a co-ordinated investigation by global media. A group of 45 trades unions from around the world, part of the International Trades Union Confederation (ITUC), has signed the new statement, the latest response to the media revelations. The call by unions could carry significant weight as union trustees are represented at some of the world’s biggest asset owners. ITUC says the pension fund trustee signatories to the letter will push their schemes to evaluate how their fund managers screen existing company investments for increasingly scrutinised tax risks such as transfer pricing and intra-group loans, which it notes are already under investigation by regulators in multiple jurisdictions. While currently legal, the unions say many could represent subsequent financial risk to the scheme assets if rules are quickly changed.
More broadly, it says the funds, as long-term guardians of employee retirement capital, should lobby against any short-term erosion of the tax base and its potential effects on durable economic activity. The trade union statement also raises concerns about what it says is “growing pressure” from business groups and large multinationals to push back against the G20-endorsed OECD BEPS Action Plan, a 15-point plan for companies to report taxable profits where business activity occurs.The trades unions say they will engage with asset managers and encourage them in turn to lobby investee companies against resisting the so-called country-by-country tax reporting proposals. They say they also want fund managers to ask investee companies for voluntary disclosure of group tax arrangements, a country-by-country breakdown of revenue and tax, and the use of subsidiaries in so-called secrecy jurisdictions.
“We are now seeing this issue move to centre-stage in pension funds.”
Sharan Burrow, ITUC General Secretary said: “Pension funds are long term asset owners, they should raise their voice to support, not weaken this global tax agenda. Some powerful finance and business interests are still trying to undermine international cooperation to put an end to the seemingly endless scandal of dodgy tax dealings, particularly by some notorious multinational companies. These tax tricks are deeply damaging to governments’ fiscal positions, and also hurt competitor companies, which do pay their fair share. Governments need to regulate to ensure that companies can no longer escape tax obligations, and we are now seeing this issue move to centre-stage in pension funds.”
Specifically, ITUC will set up a Responsible Investor Working Group on Tax within the next three months to examine the issue of corporate tax avoidance and its impact on long-term returns for pension scheme beneficiaries. The group has called on responsible investors to join the initiative.
The group will analyse the legal and regulatory risk of tax issues, the effect on the overall tax base and the potential impact on investment returns over the duration of an investment holding.